Ramsey Air Meds, LLC v. CUTTER AVIATION

• Decision Date: 08 June 2000
• Docket Number: No. 1 CA-CV 99-0392.,1 CA-CV 99-0392.
• Citation: 198 Ariz. 10,6 P.3d 315
• Parties: RAMSEY AIR MEDS, L.L.C., an Arizona limited liability company, Plaintiff/Appellee, v. CUTTER AVIATION, INC., an Arizona corporation; John Skoro and Cynthia Skoro, husband and wife, Defendants/Appellants.
• Court: Arizona Court of Appeals

6 P.3d 315

198 Ariz. 10

RAMSEY AIR MEDS, L.L.C., an Arizona limited liability company, Plaintiff/Appellee, v. CUTTER AVIATION, INC., an Arizona corporation; John Skoro and Cynthia Skoro, husband and wife, Defendants/Appellants.

No. -0392.

Court of Appeals of Arizona, Division 1, Department A.

June 8, 2000.

DeConcini McDonald Yetwin & Lacy, P.C. by Philip R. Wooten, Phoenix, for Appellee.

Ryan Walker & Rapp, P.L.C. by Polly S. Rapp, Frank L. Migray, Christopher T. Rapp, Phoenix, for Appellants.

OPINION

ACKERMAN, Judge.

¶ 1 We consider whether the trial court erred in awarding attorneys' fees to Plaintiff under Arizona Revised Statutes Annotated ("A.R.S.") section 12-341.01(A) (1992).¹ The trial court found for Plaintiff on its negligence claim but not on its contract claim. Because we conclude that Plaintiff's successful negligence claim did not arise "out of a contract," we reverse the award of attorneys' fees.

BACKGROUND

¶ 2 In October 1995, Plaintiff/appellee Ramsey Air Meds, L.L.C. ("Ramsey"), purchased a 1973 Rockwell 690A Commander aircraft. The aircraft was powered by two Garrett turboprop engines.

¶ 3 Shortly after receiving the aircraft, Ramsey entered into a contract with Defendant/appellant Cutter Aviation, Inc. ("Cutter") to "manage" the aircraft, including providing "pilot services" as needed, providing hangar space, and advising on necessary maintenance and repairs. Cutter is in the business of aircraft maintenance, refurbishment, sales, and rentals.

¶ 4 Pursuant to the contract, Cutter supplied pilot Gary Neely to fly the aircraft. Mr. Neely flew the aircraft on thirteen flights without incident. During the initial weeks of the contract, Cutter provided maintenance and repair services for the aircraft as needed.

¶ 5 When it appeared that Mr. Neely would no longer be available to pilot the aircraft, Cutter selected a second pilot, Defendant/appellant John Skoro. Mr. Skoro was an experienced pilot, with substantial experience in other turboprop aircraft, but with no experience in the Rockwell 690A Commander. Mr. Neely therefore provided Mr. Skoro with instruction and training on the Rockwell aircraft, including training flights.

¶ 6 On December 16, 1995, Mr. Skoro made his first flight as "pilot in command" of the aircraft. He flew the aircraft from Phoenix to Prescott to pick up Mr. Ramsey (Ramsey's President) and his mother. The flight was normal, although the weather in Prescott was cold, overcast, and snowy.

¶ 7 When Mr. Skoro attempted to re-start the airplane engines for the return flight to Phoenix, there was some difficulty in starting the right engine. On its first two start attempts, the right engine did not start normally and Mr. Skoro aborted the start by pulling the "condition lever" to cut off fuel to the engine. The engine started on the third try. Mr. Skoro later noted that the right engine could not attain full power during the flight back to Phoenix. Nevertheless, the return trip was safe and uneventful.

¶ 8 In Phoenix, Cutter determined that the right engine was damaged and removed it. The engine was flown to facilities in Oklahoma, where it was disassembled and examined. Ramsey's expert concluded that the engine had been damaged in "an operator induced overtemperature excursion during one or more starts at Prescott." The expert concluded that Mr. Skoro failed to have the engines' propellers in their "unfeathered" position during the start, and that this caused the right engine to exceed its operating temperature during the start. Mr. Skoro denied starting the engines with the propellers in the wrong position.

¶ 9 Ramsey brought suit against Cutter and the Skoros (jointly "Defendants"), asserting one claim for breach of contract (failure to provide a qualified pilot) and one claim for negligence. Cutter denied liability, contending that Mr. Skoro was qualified, had operated the aircraft correctly, and that the damage was caused by other mechanical problems.

¶ 10 After a bench trial, the court found for Ramsey on the negligence claim but against Ramsey on the contract claim. It awarded Ramsey $93,278.61 in damages on the negligence claim, prejudgment interest of $21,628.52, and costs of $230.25. Concluding that the negligence claim arose "out of a contract," the trial court also awarded Ramsey $37,626.95 in attorneys' fees pursuant to A.R.S. § 12-341.01(A).

¶ 11 Defendants appeal. We have jurisdiction pursuant to A.R.S. § 12-2101(B) (1994).

DISCUSSION

¶ 12 The application of A.R.S. § 12-341.01(A) to Ramsey's claims is a question of statutory interpretation, which we review de novo. See Hampton v. Glendale Union High Sch. Dist., 172 Ariz. 431, 433, 837 P.2d 1166, 1168 (1992)

. The trial court's decision on the amount of fees to award is reviewed under the abuse of discretion standard. See Pioneer Roofing Co. v. Mardian Constr. Co., 152 Ariz. 455, 466, 733 P.2d 652, 663 (1986).

¶ 13 At the time relevant to this action, § 12-341.01(A) provided:

In any contested action arising out of a contract, express or implied, the court may award the successful party reasonable attorney's fees. This section shall in no manner be construed as altering, prohibiting or restricting present or future contracts or statutes that may provide for attorney's fees.

A.R.S. § 12-341.01(A) (1992) (emphasis added).

¶ 14 There is no doubt that Ramsey was the successful party in this action: although it prevailed on only one of its two claims, it was entirely successful in securing the relief it sought. See Schweiger v. China Doll Restaurant, Inc., 138 Ariz. 183, 189, 673 P.2d 927, 933 (1983)

.

¶ 15 The attorneys' fee issue, however, is complicated by the fact that Ramsey prevailed on its tort claim but not on its contract claim. Ramsey contends that the trial court properly awarded fees for its successful tort claim on any of three grounds: (1) Defendants conceded fees were appropriate; (2) the tort claim was "interwoven" with the contract claim; or (3) the tort claim itself arose "out of a contract" so as to support an award of fees.

1. Admission.

¶ 16 Ramsey first points out that Defendants admitted in their pleadings that "the allegations of Ramsey's complaint arise out of contract." Because the Complaint included a claim for breach of contract, such an admission was appropriate. We do not believe it controls the issue, however, when Ramsey did not prevail on its contract claim.

2. Interwoven.

¶ 17 It is well-established that a successful party on a contract claim may recover not only attorneys' fees expended on the contract claim, but also fees expended in litigating an "interwoven" tort claim. See Pettay v. Insurance Mktg. Servs., Inc. (West), 156 Ariz. 365, 368, 752 P.2d 18, 21 (1987)

; Campbell v. Westdahl, 148 Ariz. 432, 440-41, 715 P.2d 288, 296-97 (1985). The litigants in those cases, however, prevailed on both of the interwoven claims. Here, because Ramsey did not prevail on its contract claim, the "interwoven" nature of the tort claim cannot support an award of fees. A tort claim does not come within the attorneys' fee statute by being interwoven with an unsuccessful contract claim.

3. Arising Out Of A Contract.

¶ 18 Ramsey's third argument raises more difficult issues. Even in the absence of an express contract claim, a tort claim may itself arise "out of a contract" so as to support an award of attorneys' fees. See Sparks v. Republic Nat'l Life Ins. Co., 132 Ariz. 529, 542-44, 647 P.2d 1127, 1140-42 (1982)

. The trial court found that Ramsey's negligence claim arose out of the contractual relationship between the parties and awarded fees on that basis. Analyzing this ruling requires us to consider the voluminous and sometimes confusing case law interpreting the statutory phrase "arising out of a contract."

¶ 19 The statute obviously applies to express claims for breach of contract. See, e.g., Cahn v. Fisher, 167 Ariz. 219, 223, 805 P.2d 1040, 1044 (1990)

. Difficulties have arisen, however, when tort or statutory claims are intertwined with contract issues. For example, one court stated that attorneys' fees incurred in tort claims may be recovered so long as a contract was "a factor" in causing the dispute. See ASH, Inc. v. Mesa Unified Sch. Dist. No. 4, 138 Ariz. 190, 192, 673 P.2d 934, 936 (1983). Others examined whether the "essence" of the claim being asserted was tort or contract. See Earven v. Smith, 127 Ariz. 354, 358, 621 P.2d 41, 45 (1980); Amphitheater Public Schools v. Eastman, 117 Ariz. 559, 560, 574 P.2d 47, 48 (1977).

¶ 20 The Arizona Supreme Court first considered this issue closely in Sparks. The plaintiff in Sparks prevailed on an insurance bad faith claim and a statutory misrepresentation claim. The trial court awarded attorneys' fees under A.R.S. § 12-341.01(A). On appeal, the supreme court held that the insurance bad faith claim did "aris[e] out of a contract" for purposes of the attorneys' fee statute:

It is apparent from the Wenk case that attorney's fees may be awarded pursuant to § 12-341.01(A) based upon facts which show a breach of contract, the breach of which may also constitute a tort. The fact that the two legal theories are intertwined does not preclude recovery of attorney's fees under § 12-341.01(A) as long as the cause of action in tort could not exist but for the breach of contract.

....

Clearly, the tort of bad faith cannot be committed absent the existence of an insurance contract and a breach thereof. Because the existence of the tort is so intrinsically related to the contract, we conclude that an action alleging insurer's bad faith is one "arising out of a contract" within the meaning of § 12-341.01(A).

Id. at 543-44, 647 P.2d at 1141-42 (emphasis added).

¶ 21 In applying the Sparks test, a court is not limited to the "form of the pleadings," but should look to "the nature of the action and the surrounding circumstances to determine whether the claim is one `arising out of a contract.' " Marcus v. Fox, 150 Ariz. 333, 335, ...